Should You Bounce On Johnson & Johnson's Rebound?

Margin Strength Drives Johnson & Johnson Higher

In a mixed report, Johnson & Johnson (NYSE: JNJ) stock is gaining. The firm missed on the top line, but margins came in far above expectations, resulting in strong bottom-line results. This translates to higher share price movements when the entire market is declining, implying future outperformance. We're not surprised by the market's interest in a stock with a yield of nearly 2.6 percent and projected to rise. The main issue now is whether the stock will go higher.

JNJ Gains On Mixed Results

Johnson & Johnson's net revenue of $24.8 billion in the fourth quarter of 2021 was solid, but the $24.8 billion in net income missed analysts' expectations by 200 basis points.  Aside from that, revenue is up 10.3% year over year and last year's sales were up 8%. COVID-19 vaccines, testing, and mitigation are responsible for a large portion of the growth, worth $1.6 billion or about 6.5% of sales.  The pharmaceutical sector, in general, increased its revenue by 16.5% over the previous year, whereas Medical Devices and Consumer Health experienced smaller percentage increases of 4.1% and 1.1%.

Moving on, the firm reported a 173% increase in GAAP earnings and a 14% boost on an adjusted basis to exceed the consensus forecast. Despite the revenue decline, the company earned $2.13 in GAAP earnings per share, bettering by a penny. The firm is predicting comparable performance this year. The new guidance is calling for revenue of $97.3 to $98.3 billion, as opposed to the consensus estimate of $97.7 with EPS expected in a wider band than previously anticipated. The $10.64 to $10.80 is about a dime above the consensus forecast of $10.32, and we see upside risk in the figure. Even while COVID-restricted activities such as medical operations and aesthetic treatments are recovering, COVID-19 is going nowhere fast.

Analysts Like JNJ’s Value And Yield

Following the Q4 report, no analyst activity has occurred but we believe that will change in the coming weeks. The most recent action, which included a price target decrease the day before the release, had a bearish tone, yet it is still bullish. The consensus price target is down in the trailing 30 and 90 days, yet the analysts still consider it a Buy and predict about 12% gains from $165.50. In our opinion, the consensus rating may not differ much, but we believe that the price target will rise.

As for the value, Johnson & Johnson stock is trading at just 16.0X its forwards earnings estimates and offering a value relative to the market as a whole. At the same time, it is yielding at almost 2.60% which is more than twice the S&P 500 average and appealing in its own right. We don't worry about the dividend's safety because it has a 43% payout ratio, a solid balance sheet, and 59 years of expansion.

The  Outlook

Johnson & Johnson shares have been confined to a narrow price range for more than a year, and they may continue to do so.  That said, based on what we've seen to date, share prices appear to be rising higher and may approach resistance levels near $167, $174.50, and the all-time high of $180. We are not holding our breath because a break above $180 would be bullish. If the firm continues to expand and achieve bottom-line success, we'll seek for a new all-time high and the stock will be expected to rise to the consensus level.

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